6 Things You Must Do When Your Checking Account Has More Than $1,000

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Once you’ve saved $1,000 in your checking account, it can be hard to know what to do next. Is that too much money to have in a checking account, or too little? Should you be diverting your money toward savings and investments, or do you still need more in your checking account?

These questions don’t have one single answer. But once you take a closer look at your personal financial situation, the next steps will become clear. Here’s what you should consider when you have $1,000 in your checking account, and what you should do going forward.

Check Your Budget and Spending Patterns

Every person’s financial situation is different. For some, having $1,000 in a checking account is a waste, as they may only spend a few hundred dollars per month until their next paycheck comes in. For others, $1,000 isn’t enough to cover regular monthly bills, so it might actually be insufficient.

Without analyzing your budget and spending patterns, you won’t know what your next financial steps should be.

If You Don’t Spend $1,000 Monthly…

If you could cover your monthly expenses without dipping into your $1,000, then that money will better serve you in a high-yield savings account. These accounts will pay you a much higher interest rate than your checking account, yet they are still FDIC-insured and allow for easy transfers back to your checking account, if necessary.

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By keeping too much money in your checking account, you’re not earning as much interest as you should.

If Your Monthly Bills Exceed $1,000…

Generally, experts advise that you keep one to two months of expenses in your checking account. For most Americans, $1,000 won’t cover those expenses. If you fall into this category, it means that you should keep on building up your checking account balance.

Even if you live paycheck-to-paycheck and your income typically covers your bills, you don’t want to get caught in the situation where your bills suddenly increase and you don’t have the cash to cover them. 

Once Your Bills Are Covered

Once you have a buffer in your checking account to cover your expenses, it’s time to start building an emergency fund. This should be a dedicated fund in a separate, high-yield savings account that will supplement your checking account.

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Typically, experts recommend keeping three to six months of expenses in your emergency fund. While having an excess in your checking account allows you to deal with occasional overages — such as a higher-than-normal utility bill, a quarterly tax bill or some other larger-than-normal expense — a dedicated emergency fund should be set aside to cover larger financial surprises. For example, if you have an unexpected $3,000 car repair or a $2,200 plumbing bill, your emergency fund should be able to cover it without dipping into your checking account overage.

After Your Emergency Fund

Once you’ve got all your bases covered regarding typical and unexpected expenses, it’s time to start investing. If you work for a company that offers a 401(k) plan, that’s a great place to start. Not only can you fund that retirement account with money that has never been taxed, it will grow tax-deferred until you withdraw it after age 59 ½.

Better still, your employer will likely match at least some of what you contribute to your account, effectively handing you free money. Over time, regular contributions, coupled with employer matches, can compound into a significant nest egg when invested wisely.

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Next Steps

If you’re a disciplined saver and you’ve still got money left over after funding your checking account, padding your emergency fund and investing in a retirement account, it’s time to consider other options. If you haven’t maxed out your 401(k) contributions, that’s a good first step. Adding your own personal Roth IRA may be another option, as it will allow you to withdraw all of your contributions and earnings tax-free in retirement.

Opening a taxable investment account at a zero-commission broker is another good way to start building up your long-term portfolio. Depending on your objectives and life situation, you might also consider starting a separate savings account for shorter-term goals, such as buying a house, funding a wedding or saving for vacations.

Bottom Line

Everyone’s financial situation is unique, so having $1,000 in a checking account will mean different things to different people. At the very least, it’s a good sign that you’re able to accumulate some money in your checking account, rather than running completely through it. But generally speaking, it’s just a good first step in a lifelong chain of financial planning.

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